Investigating the impact of organizational excellence and leadership on business performance: an exploratory study of Turkish firms

SAM Advanced Management Journal, Wntr, 2008 by Musa Pinar, Tulay Girard

The framework proposed by Darling and Nurmi (1995) has been augmented here to include business performance measures to examine the effects of organizational excellence factors and leadership on business performance. With this modified framework, the research attempts to determine whether 1) The three organizational excellence factors are the keys to achieving business performance; 2) The leadership factors are the keys to achieving a high level of business performance; 3) There are any synergistic relationships among the leadership and organizational excellence factors, and 4) Leadership factors mediate the relationship between organizational excellence and business performance. Because Darling and Nurmi (1995) do not include any performance measures in their framework, the authors of this study, drawing from prior studies (Deshpande, Farley and Webster, 1993; Narver and Slater, 1990), add the following seven business performance measures to the model: profitability, market share, growth, customer retention, sales growth, return on investment, and personnel turnover. The conceptual framework for this study will be presented after the literature review.

Literature Review and Hypotheses

Over the years, the importance of customer focus (orientation) and its impact on business performance have received significant attention. A study by Kumar and Subramanian (2000) found that hospitals with a strong customer focus had significantly higher performance in terms of success of new services and facilities and ability to retain patients. In another study, Brady and Cronin (2001) showed that customer orientation was indirectly related to organizational quality, customer satisfaction, and outcome behaviors, which suggested that firms with a customer orientation were viewed as more successful in the execution of their strategies. Pinar et al. (2003) concluded that Turkish companies with high customer focus emphasized satisfying their customers and rewarded personnel who took care of customers. They found significant performance differences between Turkish firms with high customer focus and firms with low customer focus. The former significantly outperformed the others. In addition, "focus on the customer" is one of the fundamental principles of successful Six Sigma implementation (Breyfogle, 2003; Harry and Schroeder, 2000), further signifying its importance for performance. Moreover, firms with strong customer focus were more productive than their counterparts (Brynjolfsson and Hitt, 1996). This focus enabled them to stay in close contact with customer needs to deliver high levels of customer satisfaction and retention (Best, 2004; Reichheld, 1993), which are key drivers of better business performance.

Companies have also realized that employees play a key role in satisfying customer needs, creating customer value, and achieving the company objectives. As Kotler (2002) and Zeithaml and Bitner (2000) point out, the firms make "promises" to their customers about their products and services through external marketing. However, it is the employees who deliver on those promises through internal and interactive marketing. Kotler (2003) asserts that it makes no sense to make promises unless a firm has the personnel to deliver them. For example, Southwest Airlines proved that their customer-oriented personnel were key to their success (Zacharias, 2001). Hosmer (2001) claimed that because human resources appear to be the most constrained resource for companies, attracting as well as retaining quality employees has become a critical strategic issue for competitive advantage and organizational success. According to Reichheld (1996), by reducing its employee turnover by just a few percentage points, one company increased its profitability 50%. He pointed out several benefits of employee retention and the collective effects of these benefits on productivity and profits. Research has shown that employee satisfaction is a key factor in delivering customer satisfaction (Wiley, 1991), where positive employee attitudes promote stronger customer loyalty (Kotler, 2003). For example, in a recent study Sears found a high correlation between customer satisfaction, employee satisfaction, and store performance and profitability (Rucci et al., 1998).